U.S. court skeptical of lawmaker immunity in trading probe

David Ingram

3 Min Read

NEW YORK (Reuters) - A federal appeals court fired skeptical questions on Monday at a lawyer for a U.S. congressional committee and a former staffer who argued that Congress is immune from having to cooperate with an insider-trading investigation.

The seal of the U.S. Securities and Exchange Commission hangs on the wall at SEC headquarters in Washington, June 24, 2011. REUTERS/Jonathan Ernst

During a hearing, a three-judge panel of the 2nd U.S. Circuit Court of Appeals appeared to lean in favor of forcing Congress to comply at least somewhat with two subpoenas from the U.S. Securities and Exchange Commission.

The case is a test of how far securities enforcers may go to police the murky world of “political intelligence,” in which firms seek to gather and sell information for traders.

The SEC is investigating trading in Humana Inc stock in 2013 ahead of a government announcement about physician reimbursement rates, which affect Humana and other health insurers.

In court papers, the SEC said it believes a congressional staff member at the time, Brian Sutter, “may have been a source” of an early leak to a lobbyist at the Greenberg Traurig law firm, who then passed the information to a Height Securities analyst, who in turn alerted clients.

Lawmakers and their staff are not immune from prosecution under insider-trading laws.

But Sutter and his former employer, the U.S. House of Representatives’ Ways and Means Committee, refused to comply with subpoenas for documents and testimony.

Their lawyers argued that they should be shielded from such investigative tactics because, under the legal principles of sovereign immunity and legislative independence, they cannot be questioned without their consent.

Circuit Judge Richard Wesley asked if Sutter went beyond protected activity in talking to the lobbyist.

“I don’t care what his job was at the Ways and Means Committee; he wasn’t in charge of insider trading,” he said.

William Pittard, a lawyer for Sutter and the committee, said it was not the court’s role to question the motives of congressional staff.

SEC lawyer Jeffrey Berger told the court that a ban on insider trading by Congress would be an “empty shell” if the regulator lacked the power to investigate.

The appeals court is expected to rule in the next several months.

A Humana spokesman could not be reached for comment. A Greenberg Traurig spokeswoman declined to comment. Height Securities said in a statement it has not received a subpoena from or been formally investigated by the SEC.